BLACKPOOL Council is financially "weak" and "under pressure" according to an official report.
And a council tax rise could not be ruled out to tackle depleted reserves.
According to district auditor Tim Watkinson's report the council's general fund fell from £4.7m in 1998/1999 to £1.3m in 2000/2001.
But council leader Roy Fisher was unable to say whether it would mean raising council tax rates. "We have not looked at the budget situation with regards to council tax," he said.
"What we have to decide is how much we are going to spend on services and that will reflect people's needs. We will need to look at it very carefully."
The annual audit letter, which the council must make public, described the council's financial positions as "weak" and said: "The general fund balance position has been deteriorating over the last three years. It is at a level that we consider low for an authority of this size and nature."
And it described the balance of the council's housing revenue account as "low" but in a "less serious" state than the general fund.
But the report brought strong reaction from opposition Tory leader Peter Callow who said: "District auditors don't use emotive language, so when they say 'The council's overall financial position is weak' this is a damning indictment of Blackpool borough Council's financial situation.
"It fully supports the Conservatives' view that this is a council whose finances are balanced on a knife edge and there is nothing in reserve for a rainy day. To raid the balances to such an extent is, in our view, imprudent to say the least."
And he accused the Labour-led council of writing off outstanding council housing rent arrears just to bring down the amounts outstanding. "The district auditor has stated that the council should continue to seek ways to reduce the levels of arrears which go beyond writing off bad debt," he said.
Coun Fisher said the council intend to increase their balance again. "Certainly at the end of this financial year the balance will be up to the £2m mark and £3m the year after," he said.
"We had to spend a lot more money on children's services. There were some unforeseen circumstances in social services that caused us to spend an awful lot of money."
According to the auditor's letter the social services budget overspend was in the region of £2m.
But despite the figures, Coun Fisher said the council wants to continue working to improve "front line services" for borough residents.
And he dismissed suggestions that the council was writing off rent arrears to bring the amounts down, saying many councils had the same problem and Blackpool had been vigilant in pursuing arrears.
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